Sunday, May 23, 2010

The government is always the problem and never the solution.

You just have to have the correct definition of "government", that's all.  A definition that does not include Goldman Sachs and Halliburton and BP as part of the government is simply delusional.  Once you put lobbyists and media back into the government, once you, in short, stop looking at what you think democracy should look like, and start looking at how it actually functions, it's very easy to see how the government is at the center of our troubles.  Just more of the same government we've got is just going to make things worse, regardless of whether you brand it as capitalism or socialism, which are ultimately nothing but two species of the same parasite that funnels the labor of the many into the hands of the few. 

Show me a government that is sustainably not a kleptocracy and I'll show you how it can be a solution; until then you're just a bunch of royal archists fucking with my an.

Today's rant is brought to you by the always wonderful P-krug (all hail the intertubes yet again) who doesn't always quite get it all right in my opinion.

First, he points out something everyone should keep very ready to hand in the coming years of deficit hysteria -- by and large, the world doesn't have debt problems because they let the government spend too much, but because we had a huge crash that reduced revenue.

You see, what the [IMF] report says is that there has been a fundamental deterioration in the fiscal outlook for advanced countries. Not only are they running up a lot of debt in the crisis, but — and much more important — they will emerge from the crisis with large structural deficits that weren't there before. So spending cuts and tax increases loom.

But here's the question: where are those structural deficits coming from? It's not interest on the debt: the IMF shows a large increase in primary (non-interest) structural deficits. So is it permanent increases in spending? No: the report shows that discretionary spending increases are a minor cause of rising deficits even in the crisis, and these increases will be reversed as stimulus winds down.

It takes careful reading to discover what's really going on:

The persistence of deficits reflects permanent revenue losses, primarily from a steep decline in potential GDP during the crisis, but also due to the impact of lower asset prices and financial sector profits.

Aha. Most people who look at the IMF report will, I suspect, read it as telling a tale of government profligacy getting us into a hole. But what the report actually says is quite different: it says that the financial crisis has made us permanently poorer, which among other things reduces revenue, and governments have to tighten their belts to make up for that loss.

He's right here, and this is very important to remember I think.  Pretending that this was all caused by government waste is counterproductive because it leads you to think that firing some teachers and auctioning off some gold plated toilet seats from the Pentagon will solve all our problems. 

However, he's wrong, because it was in fact all caused by the government.  Not government profligacy but the takeover of the government by finance.  Without the lever of government backed leverage Achilles wasn't going to get far lifting the world.

Next, he points out something very simple and very basic, even if he only points out one side of it

If libertarianism requires incorruptible politicians to work, it's not serious.

I remember Nozick somewhere saying that you really had to put the repeated failures of a given political system back into your definition of the system.  In other words, the idea of communism does not entail the idea of authoritarianism, nor does the idea of capitalism necessarily include inequality.  But how many times do you have to see the same story play out in either case before you stop deluding yourself as to what's really involved in either system?  There is no such thing as a pure system that has been perfectly designed to withstand the idiocy of the apes, which P-dad here aptly points out without going on to confront the flaw in his perspective on the world; his brand of liberalism would require that the whole government be run by ... well ... Paul Krugman, or some other equally brilliant and wide-ranging technocrat.  This faith in an uber-competent regulatory paradise is just as unserious as the faith in markets and incorruptible rules he critiques.

UPDATE: as an aside, he has actually already responded to this critique of his critique of libertarianism.  In my mind there's no question that he's right as far as he goes -- tort law is inferior to regulation in principle in various circumstances and it's easy to find practical examples of this.  Naturally, it's not a question of whether or no this statement is true, but how often.  More directly it's a matter of what principles you use to make this decision, or whether you just assume by default that everything is guilty of needing regulation until proven otherwise.  The whole point of developing a political philosophy is to think through what underlying principles would lead you to lean towards regulation or away from it, so you aren't reduced to simply rooting for the donkeys or the elephants.


Anonymous said...

Yet again Krugman has got it backwards. The bubble artificially pumped up revenues for the government and now it is slowly reverting back to it's true level. You'd think as a nobel prize winning economist he'd know this.....


Clark said...

That seems like a valid point conceptually, but it's going to be hard to make the numbers work, at least at a Federal level. I mean, state and local governments may have grown to unsustainable levels on the back of the housing bubble, but more than 80% of the federal government's revenues comes from income and payroll taxes. There wasn't really a bubble in these sources of revenue, as one of the defining characteristics of the last 20 years was stagnant real incomes for a lot of the population.

Anonymous said...

So presumably the federal tax base has been static for 20 years?

And the bubble wasn't just in housing, there were jobs created by the "wealth" people were extracting from their homes and borrowing they took on.

Does the bubble years show a significant divergence from the trend for taxation revenues? My instinct is yes but i have exactly zero hard or even ancedotal evidence to back that claim up.

I honestly don't know the answer to the above questions would interested to find out.


Clark said...

I agree, the bubble was really in credit, and housing, finance, private equity, etc ... were just symptoms.

But the trouble is that it seems the federal government (at least) wasn't able to capture much of the increase. Take a look here:

Federal revenues as percentage of GDP were right in line with the post-war average during the credit bubble. If anything, the take was down off the highs of the tech bubble.

Now, you could argue that there was a bubble in GDP, but that's a pretty tough case to make because it's pretty clear that the big bubble in banking didn't do much for the economy as a whole:

So, it seems that when times were good, the credit system got very big and profitable while managing to avoid paying taxes or creating much benefit for anyone outside that system. Then, the explosion of the credit system did what most financial crises do, which is semi-permanently reduce trendline GDP, and hence reduce the amount of taxes the government collects.